The Economics of Insider Trading: A Free Market Perspective

Abstract

We deny that asymmetrical information is a market failure. In order to make this case, we subject to critical scrutiny the strongest case for this thesis: the view that laws prohibiting insider trading are viable, necessary, or compatible with the rule of law.

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Notes

  1. 1.

    Ronald Coase has done yeoman work in bringing transactions costs to our attention, see Coase (1960). For a severe critique of overemphasizing the importance of these types of costs, see Rothbard (1990).

  2. 2.

    Other than, whichever maximizes profits with a greater likelihood, from the businessman’s point of view.

  3. 3.

    This is a quote from Michael Dooley, quoted in Bainbridge’s introduction to the insider trading volume of Manne’s collective works. Dooley (1999).

  4. 4.

    It is very difficult to determine who knew what when.

  5. 5.

    They also exist under socialism. See Mises (1922).

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Correspondence to Walter E. Block.

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Smith, T., Block, W.E. The Economics of Insider Trading: A Free Market Perspective. J Bus Ethics 139, 47–53 (2016). https://doi.org/10.1007/s10551-015-2621-5

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Keywords

  • Insider trading
  • Asymmetrical information
  • Market failure
  • Rule of law

Mathematics Subject Classification

  • D82